Divorce Financial and Tax Issues in Montgomery County
PA Attorney Addresses Complicated Financial and Tax Issues in a Divorce
Every divorce involves some legal issues surrounding finances and taxes. A divorce settlement will involve determining how property is divided, if and how alimony will be paid, who has custody of any children and how your future finances and taxes will be handled. Though every divorce is different, the laws in Pennsylvania are particularly complicated when it comes to figuring out financial and tax issues following a settlement. By having an experienced PA divorce lawyer on your side, you can protect yourself and your finances from a potential lifetime of problems.
The Law Offices of Sheryl R. Rentz, P.C. offer free consultations on any first-time divorce matter. We are upfront about our services and can handle any one aspect of your divorce concern or be with you through the entire proceeding and beyond. Our legal team has years of experience handling the particulars of divorce law. Contact us at (610) 645-0100 for a free evaluation.
What is Equitable Distribution?
If you are concerned about how finances and property are handled after a divorce you should know that Pennsylvania is a state with equitable distribution laws. Equitable distribution means that following a divorce all property, finances, and other holdings (such as stocks, bonds, and savings) are divided according to what is deemed to be "fair" by the family court. Because of the arbitrary nature of some of the cases we have seen it is highly suggested that you have a divorce attorney who can handle at least this phase of the divorce proceedings.
At the time of equitable distribution, the court must separate personal property from marital property, as they don’t have the authority to divide non-marital property. Premarital property is anything deemed to be acquired before the marriage, as a gift by someone other than the spouse, post-separation, or received as payment for a settlement on a claim that accrued before the marriage or post-separation. Financial discovery may be necessary in identifying, classifying, and valuing the marital property to obtain a proper distribution of equity. The discovery process is designed to obtain all the information necessary to present an accurate depiction of assets and liabilities.
"Together we did calculations she was within a $1 of the court ordered amount. Sheryl understands the law and the system."
- David, Bucks County, PA
How Does Division of Assets Work in Pennsylvania?
When figuring out which property or finances goes to which spouse, a judge takes into consideration several factors. A judge must consider the length of the marriage, the employment or role that each spouse played in the marriage, the age and health of both spouses, agreements regarding the finances that were made before the divorce, income or earning potential of each spouse, contributions to the household including non-monetary ones like childcare and many others. Once a family court judge has considered all of the evidence, he or she makes a decision of where the finances will go.
How Are Alimony and Spousal Support Awarded in Pennsylvania?
Alimony is a court ordered payment from one spouse to the other as part of the settlement after a divorce. When deciding on the amount of alimony that should be paid, the court will take into consideration several factors. These include:
- The duration of the marriage
- The assets and liabilities of both parties
- The age and health of both parties
- The relative earnings of both parties
- The relative earning capacity of both parties
- Any contributions that were made to the education or training for one party by the other
- Number of dependent children
- Reasonable monthly expenses
Spousal support is a different type of payment, as it is a temporary award that is made from one spouse to the other during the legal separation period before a divorce is granted. Fault is one of the factors that can be used in determining support.
What Are the Divorce Tax Laws in Pennsylvania?
Tax consequences occur after any divorce. The tax laws that surround divorce in Pennsylvania are especially complex. These laws provide different tax brackets, tax shelters, tax requirements, and even tax write-offs based on the particular circumstances of the divorce. In general, you can expect your taxes to be affected in the following areas:
- Alimony: For separation agreements made on or before December 31, 2018, alimony is still considered to be income, so the receiving spouse must declare it on their taxes. The paying spouse is able to make a deduction, but they must abide by all the regulations regarding alimony payment. However, for separation agreements made on or after January 1, 2019, alimony will no longer considered income as a result of the Tax Cuts and Job Act, meaning that the receiving spouse does not have to declare it on their taxes and the paying spouse cannot deduct it from their taxes.
- Childcare Credit: Divorced parents must determine who will be claiming tax exemptions for childcare credit. Usually, this will be the primary custodial parent. It is important to note that child support is NOT taxable income and cannot be deducted by the payee.
- Real Estate: Selling or moving from the marital home will impact the ability to deduct mortgage interest and other real estate benefits.
- Separate or Joint-Filing: If you have not finalized all divorce proceedings by December 31st, you will still be considered married for tax purposes. Completing your divorce after the New Year may grant certain benefits, such as the ability to file your taxes jointly.
- Gifts: Under the Gift Exclusion Tax, the IRS allows up to $14,000 in gifts between individuals before they need to report it is as possible taxable income. During divorce proceedings and after, it is important to keep track of how certain items have been gifted to and by your ex. “Gifts” can add up over the course of a divorce and alter the division of property in your proceedings.
- Adoption: If one or both spouses completes the adoption process and the child is under the age of 18, they are eligible for a federal tax credit, currently in the range of $13,000. There are certain fees which fall under this credit as well, such as adoption and attorney, as well as travel expenses.
- Non-Liquid Assets: In addition, many non-liquid assets have tax consequences when transferred in a divorce, such as pensions, 401Ks, stock option plans, retirement and life insurance annuities, etc.
- Same-Sex Marriage: Since the legalization of same-sex marriage, same-sex individuals will follow the same tax laws and filing procedures as in heterosexual divorce.
If you receive certain financial amounts from a divorce settlement, you may have to pay taxes on them. By contacting our office for a free consultation, you can defend yourself against paying unnecessary expenses and recover the amounts that are legally yours.
Post-Divorce Modifications and Enforcement
Even after all the issues of your divorce have been settled it’s possible for circumstances to change, warranting modifications. There may also be the need to get help enforcing court orders if your ex-spouse is being non-compliant. Matters that often require revisions involve child custody arrangements, visitation scheduling, alimony, and child support. Adjustments can be requested based on an increase or decrease of income, new marriage, evidence of child abuse, change in the children’s educational status, or the failure to transfer retirement benefits.
Helping You Preserve Your Finances and Your Future
The Law Offices of Sheryl R. Rentz, P.C. are located in Pennsylvania and we have particular experience dealing with financial and tax issues stemming from a divorce. We are one of the few law firms that offer a free consultation for all potential clients. If you or a loved one is involved in a divorce, call or contact our office immediately to learn your rights.
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